The Dirt Cheap Value Portfolio: Extreme Hate Selling Translates Into Opportunity
Crashing a whopping 7% versus the Dow’s 2% loss, is downright scary. Luby’s extreme spike in volume is intriguing. Institutional 13F purchases are encouraging! FSYS wins contract to supply natural gas refueling stations in Italy. 80% of the portfolio are prime takeover candidates. Being a contrarian is not all that it is cracked up to be. Going against the crowd and buying when everyone else is selling is not easy, but the rewards can be enormous. There is absolutely no doubt the last few weeks have resulted in a chock full of pain for the holders of the “DCVP”- its relative strength was worse than horrible, falling three times more than the Dow’s 2.2% drop. In fact, the portfolio dropped a dubious 7%, from $39.47 to $36.72, in comparison to the Dow’s drop of 2%, from 18,086 to 17,690. Fear and panic are at epic proportions, but so is the opportunity. It is time to be greedy when others are fearful, especially when the companies you are buying have solid balance sheets and are selling for less than intrinsic value. The combination of an exceptional balance sheet and a bargain price, infers that these companies are also susceptible as takeover targets- a very good thing for investors. The only winner of the bunch was Coffee Holdings Inc. (NASDAQ: JVA ), with a token 2% rise. The losers were Bridgford Foods (NASDAQ: BRID ), at the top of the list taking a 15% beating, followed by Fuel Systems Solutions (NASDAQ: FSYS ) at 8%. Rounding out the red ink was Luby’s (NYSE: LUB ) loss of 5%, and Pep Boys’ (NYSE: PBY ) red ink of 3%. The good news is that these losses, can quickly translate into gains, for those opportunists that pounce on these overly hated securities. Easy to say, but hard to do. The lineup: Pep Boys: If the auto parts seller isn’t acquired by next month’s second quarter earnings results, its latest report card could propel its shares further into orbit. The company is expected to earn 8 cents versus breakeven results, on just a 1% increase in sales to $531 million. Those low expectations, should be relatively simple to surpass, especially when you consider the benefits of lower gasoline prices and increased summer driving. Luby’s Inc.: the cafeteria chain is still three months off from reporting its fourth quarter results, but things are beginning to show signs of improvement, as both debt and overhead costs have been chopped. The eatery is slated to pick up a few fresh culinary service contracts, a handful of franchisee locations and a couple new company owned Fuddrucker’s sites by the close of its fiscal year. Wall Street seems to be finally warming up to the company’s turnaround efforts, as evidenced by its Motley Fool Cap’s superb rating, of five stars. There has been an interesting pick up in volume too, as there were two sessions in the past month, that generated 20 times average daily volume. There is an old saying on Wall Street, that volume always precedes price- maybe a price spike is just around the corner. Checking the latest 13f filings (deadline for 2nd quarter is 8/15) it was revealed Ancora Advisors was a big buyer, taking an initial 135,000 share position. With Luby’s shares still near historic lows, I would not be surprised to see its Board of Directors, authorize a $10 million stock repurchase program to take advantage, of its seemingly compelling value. The CEO isn’t waiting, and is taking matters into his own hands. He’s been buying the shares in the open market, like there is no tomorrow. Does he know something the rest of us don’t know? Of course he does. Always follow the smart money. Price target: $8.50 Fuel Systems Solutions: The shares continue their trend of destruction, creating a new historical low despite a nice contract announcement that will be providing compressor and related equipment to a company, that plans to build up to 30 European CNG refueling stations per year. In addition, Ancora Advisors took an initial 134,847 shares position, while Grace & White upped their stake 6.7% to 785,662 shares. This Thursday before the market open, the alternative fuel supplier will be reporting its second quarter results. Analysts are estimating a dismal 10 cent loss, on a top line of $74 million. These “down in the gutter estimates” should be a breeze to surpass, and could spur a short squeeze scenario. Recent 13f filings show that Ancora Advisors purchased a 75,000 share stake and Grace & White pressed their bet another 103,000 shares, to 759,000 shares. Price target: $14 Bridgford Foods: is set to release its third quarter results near the end of August, and a big improvement is in the works. Last year’s quarter produced a loss of 26 cents, on sales of $27.9 million. Lower commodity costs along with a an improved cost structure, should put its bottom line firmly back in the black. It is worth noting, the California Public Employees Retirement System has recently acquired a small position on the shares. Price target: $11 Coffee Holdings Inc.: management is finally getting hot and heavy about promoting the stock-first with its hiring of the Liolios Group (they were contracted by Diedrich Coffee and just one short year later, Diedrich was acquired by Keurig Green Mountain (NASDAQ: GMCR ) at thirty times the price). In fact, next month JVA will present at the Gateway Conference with the aid of the Liolios Group. I wonder if Liolios can repeat their magic again, and get JVA’s shareholder’s a “thirty bagger” too. Heck at this point, I’d be content with a one bagger. Its stock buyback allotment nearly exhausted: the coffee purveyor has nearly gone through its $1 million share buyback commitment. Look for another $1 million of purchases to be authorized, when it reports its third quarter results next month. Last, but not least, Seeking Alpha author “Dutch Trader” recently wrote a flattering piece , which stressed the company’s progress with its Café Caribe brand and its withdrawal from its commodity trading endeavors. Price target: $8 Editor’s Note: This article covers one or more stocks trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks. Disclosure: I am/we are long FSYS,LUB,PBY,BRID AND JVA. (More…) I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
